Sep 30 2011
The Federal Reserve (the Fed) announced a plan to rebalance its $2.65trillion securities portfolio, by increasing its share of longer-term Treasury bonds by $400 billion and selling an equivalent amount of shorter-term issues.The plan has been dubbed “Operation Twist” after a similar policy in the 1960s. The Fed hopes its impact will be similar to that of quantitative easing and push down long-term interest rates.
Italy S&P Downgrades Italy’s Rating to A, With Negative Outlook
Standard & Poor’s (S&P) lowered Italy’s credit rating from A+ to A with a negative outlook. S&P downgrade of Italy’s rating was driven by concerns over the country’s inability to stall its increasing domestic debt and implementing effective austerity measures. The rating agency also cut the country’s annual GDP growth projection to 0.7% from 1.3% growth. The period under consideration covers economic expansion over a 4-year period (2011 – 2014).
Eurozone ECB Purchase Bonds to Avoid Sovereign Debt Default
The European Central Bank (ECB) bought Italian and Spanish bonds to forestall a possible default and avoid another possible victim of the two year-old debt crisis which has led to bailouts for Greece, Ireland and Portugal. Investors have become more bearish on increasing debt crises in the Eurozone following Italy’s debt rating downgrade as talks to avoid a Greek default drags on. The International Monetary Fund (IMF) also revised downward its outlook for Eurozone nations, based on worries that Greece will default on its international bailout loans and destabilize the region. Greece is engaged in negotiations with its international creditors to avoid a default, but analysts are of the opinion that it could still falter in the months ahead even if it resolves its immediate funding crisis. Meanwhile, the Greek Cabinet agreed to further austerity measures being demanded by European and international creditors before Greece receives the next tranche of bail-out funds. With Eurozone banks finding it difficult to access short-term loans amid concerns about their exposure to a potential Greek default, on September 15th the ECB took coordinated action with the Central Banks of America, Britain, Japan and Switzerland to boost Dollar liquidity across European banking system.
IMF Cuts World’s Q4 2011 GDP Growth to 4%
IMF cut its growth forecast for the global economy to 4% in Q4 2011 and 2012 compared to the 5% growth seen in 2010. The international lender previously forecast 4.3% growth for 2011 and a 4.5% expansion in 2012. The growth outlook is largely driven by expected rapid expansion in China, India and Brazil as recovery from the world recession weakens considerably.